Post Has Watergate Scandal of Its Own

President Obama’s Big Government socialism is threatening the profits of The Washington Post, and Post reporter Steven Pearlstein can remain silent no more.

Not only does a Post company now stand accused of fraudulent practices, two high-powered law firms are considering lawsuits on behalf of the shareholders of the Post against the company’s directors, including Warren Buffett and Bill Gates’ wife Melinda.

The company, Kaplan, is part of The Washington Post Company and “has provided the handsome profits that have helped to cover this newspaper’s operating losses,” admits Pearlstein in an extraordinary August 11 column. “Although we in the Post newsroom have nothing to do with Kaplan, we’ve all benefited from its financial success.”

Please understand that Kaplan is facing the threat of tough new federal regulations from the Obama Administration.

Isn’t it interesting how profits are now being defended when they benefit liberal journalists?

Pearlstein has benefited so much that he has written this column trying to protect the profits that help pay his salary. Pearlstein, who won the 2008 Pulitzer Prize for Commentary, is playing public relations mouthpiece for Post chairman Donald Graham, in trouble for the fraudulent practices carried on under his nose by Kaplan employees. They hooked some students on loans they couldn’t afford for an education that was overvalued.

Remarkably, Pearlstein makes a conservative argument—that for-profit educational companies provided competition for public and state colleges and universities. Tell it to the Obama Administration.

Consider the situation: the Post, a long-time mouthpiece for the liberal wing of the Democratic Party—a paper that endorsed Obama for president—is appealing to conservatives and is under fire by liberal Democrats in the Obama Administration and on Capitol Hill because of the activities of its for-profit educational subsidiary.

You may recall that AIM broke the story that Pearlstein was a participant in a for-profit Washington Post conference designed to attract Washington, D.C.-area movers-and-shakers. He is a true company man—for a company under assault. Of course, it’s just one of many under Obama.

For conservative media critics, the story is heaven-sent. The Post, which gave us the Watergate scandal that brought down Richard Nixon as president, has a Watergate of its own. It’s occurring under a Democratic Administration and the basic charge against the Post is that it is making obscene profits at the expense of students and young people and federal taxpayers.

Kaplan, which boasts that “We build futures,” is in trouble as a result of the scandal and the high-flying unit is therefore threatening the viability of the Post newspaper, leading possibly to layoffs or firings of news personnel.

Kaplan has been the largest and fastest-growing division of the Post Company.

On August 4, the Senate Committee on Health Education Labor and Pensions held a hearing featuring Gregory Kutz, Managing Director, Office of Forensic Audits and Special Investigations of the U.S. Government Accountability Office (GAO). The GAO found that “Undercover tests at 15 for-profit colleges found that 4 colleges encouraged fraudulent practices and that all 15 made deceptive or otherwise questionable statements to GAO’s undercover applicants.” Kaplan was one of the guilty parties.

It gets juicier: before the GAO investigated and exposed Kaplan’s deceptive educational practices, one of Kaplan’s “core values” was “integrity.” It said, “We hold ourselves to the highest ethical standards in everything we do.” Yes, and The Washington Post newspaper practices objective news reporting.

The problem, from the Post’s perspective, is that even before the scandal broke, the Obama Administration had been threatening to crack down on the for-profit universities, including Kaplan, because of their “high prices, uneven performance and shady marketing practices,” as Pearlstein put it.

The story is starting to attract the attention of other media. The New York Times reported just the other day that Kaplan has suspended enrollment at its campuses in Pembroke Pines, Florida, and Riverside, California, “where undercover investigators for the Government Accountability Office found deceptive practices by admissions officials.”

“Among the incidents uncovered at the Pembroke Pines location,” reports the Florida Sun-Sentinel, “an admissions officer falsely told an applicant that the school had the same accreditation as Harvard and the University of Florida. The officer wouldn’t let the applicant speak to a financial aid representative until she signed an enrollment contract. And he told her not to worry about repaying student loans because ‘tomorrow’s never promised.’”

Washington Post stock fell $31.05, or 7.6 percent, in one day as a result of the Post acknowledging the bad news about Kaplan.

The Post was forced to cover the scandal, too, in a story headlined, “GAO: 15 for-profit colleges used deceptive recruiting tactics.” Kaplan’s role and relation to the Post Company was mentioned in the third paragraph.

The story also noted that, in a joint statement, Post chairman Donald E. Graham and Andrew S. Rosen, chairman and chief executive of Kaplan Inc., described the tactics revealed in the videotaped GAO interviews as “sickening.”

They claimed that “They violate in every way the principles on which Kaplan is run. The GAO and the Senate [Health, Education, Labor and Pensions Committee] have done us a favor. We will do everything in our power to eliminate such conduct from Kaplan’s education institutions.”

It’s nice to be able to get such a statement into a major newspaper. It helps when you own the paper.

The equally self-serving Pearlstein column brought to mind the remarks that Post Company chairman Graham gave at the annual shareholders meeting on May 13. I have not reported on the comments until now. His speech, which I mentioned during the question-and-answer period sounded like Ronald Reagan complaining about the heavy hand of big government, is publicly available and worth reading. It demonstrates that liberals can scream when their bottom line is threatened.

However, the Graham annual meeting remarks came before the GAO exposed Kaplan’s shoddy practices.

The Obama Administration, Graham griped, was seeking “to impose a form of price controls on tuition at for-profit [educational] institutions.” There are “many troublesome sections” in the “regulatory package” being offered by the administration, he said. If the recommendations are implemented, he said, “they could potentially deny half of our Higher Ed students eligibility for federal student financial aid.”

This serves to reinforce the point that Kaplan (and therefore, the Post) is relying on federal money.

But having been caught by the GAO and having learned the lessons of Watergate, Kaplan is out front on the scandal, saying:

“The actions described in the GAO report at two of our colleges are contrary to our standards and values in every way. Immediately upon learning of the incidents we initiated our own internal investigations at these schools. We have suspended enrollment at our Pembroke Pines, Florida and our Riverside, California campuses. Investigations at both campuses are ongoing.

“We will take all necessary actions—including termination—with respect to any employee found to be in violation of our clearly-outlined standards and the code of conduct that is emphasized in our repeated training and our day-to-day operations.

“The actions described in the GAO report are simply unacceptable. We will do everything we can to ensure that such incidents are not repeated anywhere at our 75 campuses or among our 16,000 higher education employees.”

At the annual meeting, Graham was questioned about possible financial damage to the company stock from new federal rules and regulations affecting Kaplan that might dry up some of the federal money. Graham was clearly worried. And so were shareholders.

Rosen, who was named president of Kaplan on November 19, 2008, came to The Washington Post Company in 1986 as a staff attorney for The Washington Post newspaper. He’s got his hands full.

Robbins Umeda LLP, a legal firm specializing in shareholder rights litigation, has announced that it is conducting an investigation “into possible breaches of fiduciary duty and other violations of the law by certain officers and directors at The Washington Post Company” in connection with “fraudulent, deceptive, or otherwise questionable marketing practices” by Kaplan.

Another firm, the Kendall Law Group, described as “a national securities firm led by a former federal judge with attorneys that include a former U.S. Attorney,” is also interested. Its website says, “Kendall Law Group has the credentials and experience to pursue any type of complex securities litigation. The firm helps shareholders exercise their power to protect their investments when companies break the law. If you are a Washington Post shareholder, you are encouraged to contact the Kendall Law Group to learn more about your rights.”

So the trial lawyers are after the Post big time. The company, you see, has deep pockets.

Post Company directors and possible targets include Lee C. Bollinger, president of Columbia University; Warren E. Buffett, chairman of Berkshire Hathaway; and Melinda French Gates, co-founder of the Bill & Melinda Gates Foundation.

Can you see it now—Post executives and directors on the stand being asked, “What did you know and when did you know it?”

As the Pearlstein column suggests, don’t look for any Watergate-style coverage of this scandal in the Post. The paper’s reporters have a vested interest in ignoring the serious nature of the scandal because the bad news could affect Post profits and their livelihoods, even their jobs.

On the other hand, there is the possibility of a federal bailout of the Post. This time, the taxpayer dollars will have to come through an avenue other than the federal student loan program.